Enhancing drought tolerance without yield decrease has been a great challenge in crop improvement. Here, we report the Arabidopsis (Arabidopsis thaliana) homodomain-leucine zipper transcription factor Enhanced Drought Tolerance/HOMEODOMAIN GLABROUS11 (EDT1/HDG11) was able to confer drought tolerance and increase grain yield in transgenic rice (Oryza sativa) plants. The improved drought tolerance was associated with a more extensive root system, reduced stomatal density, and higher water use efficiency. The transgenic rice plants also had higher levels of abscisic acid, proline, soluble sugar, and reactive oxygen species-scavenging enzyme activities during stress treatments. The increased grain yield of the transgenic rice was contributed by improved seed setting, larger panicle, and more tillers as well as increased photosynthetic capacity. Digital gene expression analysis indicated that AtEDT1/HDG11 had a significant influence on gene expression profile in rice, which was consistent with the observed phenotypes of transgenic rice plants. Our study shows that AtEDT1/HDG11 can improve both stress tolerance and grain yield in rice, demonstrating the efficacy of AtEDT1/HDG11 in crop improvement.